Contract Killer: Laughs & Legal Threats
By Jarrett Murphy, Village Voice, November 21, 2006

LINK

Not every City Council hearing features threats of legal action or a cackling city comptroller, but hey, contracting policy always generates high emotions—at least when someone's making $450 an hour on a no-bid deal.
The deal in question is the $17 million no-bid contract the Department of Education awarded this summer to Alvarez & Marsal—a firm that specializes in "turnarounds" of government entities and corporations—for 18 months of advice on how the DOE can streamline its budgeting and administration. The pricey deal is just the latest instance in a behind-the-scenes bureaucratic turf war that's raged since Mayor Bloomberg won control of the schools.

When city agencies buy stuff from outside vendors, they have to go through a process dictated by the city's procurement board that demands competitive bids except under specific circumstances, requires a hearing whenever a non-competitive bid is contemplated, and allows the Comptroller oversight of the process.

But when the city's schools came under mayoral control, they didn't become a city agency. According to the Green Book (which is a gaudy orange this year in a belated homage to The Gates), the DOE "was created by the State Legislature and derives its power from state law." So the DOE says its billions of dollars of annual contracts are exempt from the city's contracting rules. And in the past four years the DOE has awarded hundreds of millions of dollars in no-bid contracts; for instance, on the same day the Alvarez deal was approved, the DOE okayed $42 million in other no-bid deals. While the no-bids are a very small percentage of its overall spending, the DOE is doing no-bid deals way more than it used to.

Critics have cried foul about the practice, be it on the infamous Snapple contract or my own bizarre obsession: the school food delivery system. Contracting rules make the process boring and slow, these critics argue, but they're there for a reason: to prevent inflated costs and sweetheart deals that screw the taxpayer.

The DOE says it only goes no-bid when there's a pressing need and only one vendor who can fill it. Which is what the DOE says was the case with Alvarez. Contracting chief David Ross says he told Chancellor Joel Klein not to waste time with a competitive bidding process that "everyone knew" Alvarez would win.

How did they know Alvarez would win? Well, Alvarez had done work in other cities, but most importantly, Ross said, "They had people on the ground." Why did they have people on the ground? Because Alvarez was already working in the schools on a contract funded by the private Fund for Public Schools. Who chairs the Fund for Public Schools? Chancellor Joel Klein.

So that was, like, a good "in."

"It's sort of a 'front-door' deal," commented soon-to-be-Congresswoman Yvette Clarke. "These folks got a leg up. Any way you slice it, they had a leg up because they had an entree to the system that others did not have." But that's cool, as long as Alvarez do good work, right? And DOE insists Alvarez does very good work that has already saved the city $89 million dollars.

But when Robert Jackson asked for copies of the Alvarez contract with the Fund for Public Schools, Deputy Chancellor for Finance and Administration Kathleen Grimm first said the schools weren't a party to the deal, then said she didn't have a copy of the contract and didn't know if Klein did. When the councilmembers asked the DOE to provide a copy of Alvarez's recommendations on cost savings, a school department lawyer said no: They're inter-agency communications, which don't have to be publicly disclosed.

"We will legally challenge that," Jackson vowed. It seemed to irk the councilman that the schools could award a multimillion-dollar no-bid deal to a firm on the basis of its performance under an earlier no-bid deal whose terms were secret.

Asked if the DOE would simply play nice and operate under the city contract rules in the future, DOE counsel Michael Best said the schools have "been moving in the direction of mirroring" those rules, but that since the school system has so many administrative layers and a unique September deadline, "the rules, we don't really feel are appropriate for us to be under." That's what had Comptroller Bill Thompson, waiting patiently to testify, chuckling in the audience.

"To say that it's different from any other agency and so they need flexibility is false, and is really hiding behind our children," Thompson told the committee. "The DOE is not above the law, even if they act like it." He promised an audit of the contract.

Posted in Fact Check

Consulting Firm Aiding the City May See Its Reputation Tarnished
By SARAH GARLAND
Staff Reporter of the Sun
December 7, 2006

A corporate consulting firm that touted its experience overhauling the St. Louis public schools to secure a $15.8 million no-bid contract with the New York City schools could see its track record tarnished by reports this week that St. Louis schools are headed for bankruptcy.

After Alvarez & Marsal, which had no previous experience in education, finished revamping the St. Louis schools two years ago, it patted itself on the back for a job well done.

A representative of Alvarez & Marsal, William Roberti, said at the time: "The district is no longer on the brink of bankruptcy."

It is now, according to reports this week from a committee of experts analyzing the school system's finances.

The St. Louis schools are also in danger of losing their accreditation and could be taken over by the Missouri State Board of Education if they don't improve on their dismal record of student achievement and school spending, experts said this week in testimony first reported by the St. Louis Post-Dispatch. They were testifying in front of a committee formed by Missouri's education board last summer to look at the still-struggling St. Louis school system, which in the past five years has seen $66 million in reserves turn into a $30 million deficit, according to the committee's co-chairman, William Danforth, the chancellor of Washington University.

Between 2003 and 2004, Alvarez & Marsal worked under a year-long $5 million contract to help reverse the school system's downward spiral.

Most recently, the corporate consulting firm was brought on by New York City's education department to advise in the administration's efforts to cut school bureaucracy as it shifts from a structure based on regions to empowerment schools. In a City Council hearing last week, local elected officials criticized the education department for hiring the company without a public bidding process.

"In St. Louis, Alvarez & Marsal was called in to improve the school district, and left it in shambles," the public advocate, Betsy Gotbaum, said in a statement. "I'm afraid if Alvarez & Marsal continues its uncontrolled march through the NYC school system we may suffer a similar fate."

At the hearing, Department of Education officials defended the firm, which helped cut $89 million in administrative costs in New York City schools last year.

"You can't blame the current problems in what's obviously a very troubled school district on the work that A&M did there in 2003. They've had four superintendents since then," an education department spokesman, David Cantor, said. "Alvarez gained the district three years of solvency."

He added: "This district will be sending more money to its schools because of the work they've done."

The president of the St. Louis school board, Veronica O'Brien, said she blames her own agency's incompetence for the city's continued woes. But Alvarez & Marsal, she added, "weren't that great of a help when they were here."

Between 2003 and 2004, Alvarez & Marsal worked under a year-long $5 million contract to help reverse the school system's downward spiral.

Most recently, the corporate consulting firm was brought on by New York City's education department to advise in the administration's efforts to cut school bureaucracy as it shifts from a structure based on regions to empowerment schools. In a City Council hearing last week, local elected officials criticized the education department for hiring the company without a public bidding process.

"In St. Louis, Alvarez & Marsal was called in to improve the school district, and left it in shambles," the public advocate, Betsy Gotbaum, said in a statement. "I'm afraid if Alvarez & Marsal continues its uncontrolled march through the NYC school system we may suffer a similar fate."

At the hearing, Department of Education officials defended the firm, which helped cut $89 million in administrative costs in New York City schools last year.

"You can't blame the current problems in what's obviously a very troubled school district on the work that A&M did there in 2003. They've had four superintendents since then," an education department spokesman, David Cantor, said. "Alvarez gained the district three years of solvency."

He added: "This district will be sending more money to its schools because of the work they've done."

The president of the St. Louis school board, Veronica O'Brien, said she blames her own agency's incompetence for the city's continued woes. But Alvarez & Marsal, she added, "weren't that great of a help when they were here."

Saturday, September 16, 2006
The A&M Story Tastes Better than M&M’s
by Norman Scott
LINK

The following article appeared on Sept. 15 in The Wave, Rockaway's (in New York City) community newspaper since 1893. (www.rockawave.com)

Oh my! Where do we start? So many delicious stories, so little time.

The strategy of the DOE is out there for all to see. Turn over and retrain teachers over a 5-year period. Automate and standardize the curriculum and teaching styles and spend a lot on professional development to do this. No tenure, low salaries, no pensions, no real union. New teachers will struggle with high class sizes and other horrible conditions as an apprenticeship and when they have earned their teaching spurs will go elsewhere. In the corporate world of BloomKlein, using children as guinea pigs is irrelevant.

If you read my report of the Joel Klein press conference on Sept. 1, which I covered for The Wave, this became very clear. I wrote Klein “seemed to negate the experience factor in teacher quality when he said even if teachers do leave after 3 years the system benefited from having such high quality teachers for even a short time, pointing out that this is better than having some 20-year teachers who do not function effectively. He did not address charges from some experienced teachers that they have been systematically discriminated against, with some schools openly advertising positions would only be open to first year teachers and openly stating ‘They must not be a transfer from another NYC public school.’ Some have surmised that the move to newer teachers is merely a cost-cutting device.”

The ad referred to above was informally posted by a teacher on a listerve, but it reveals what she was told. Anyone who has been around a school or been in a classroom for any amount of time knows full well that experience does count no matter how dedicated a new teacher is. Preferring a first year teacher to one with experience makes no sense unless it is all about a lower salary and a person without tenure who will not demand the contract be adhered to.

Some say it takes 5-10 years to become a fully rounded teacher but in my experience by the 3rd year, people are pretty capable. That Klein seems so willing to accept that people from the high priced Teaching Fellows program will leave after two or three years shocks educators but makes perfect sense in the corporate world where the bottom line is so all-important. It is interesting that the high end school systems in the suburbs are snapping up many of these NYC people as they compete their 3rd year while avoiding first year teachers like the plague. Just ask new teachers who try to get jobs on Long Island. They are told to go to NYC to learn how to teach. I’ll comment next time on the Open Market Plan that has turned so many teachers with seniority (a dirty word at the DOE – and it seems the UFT) into substitute teachers as the UFT tries to put lipstick on the pig of the last contract.

Many questions were raised at Klein’s press conference about no-bid contracts, in particular the 17 million dollars awarded to consulting firm Alvarez and Marsal. I reported “A&M has come under scrutiny for their management of the schools in St. Louis which led to drastic cuts that included the closing of 16 schools, cut staff and charges the corporate management turn-around mentality had taken a school system in severe trouble and made it worse.” A report from teachers in St. Louis said, “… the ‘turnaround’ management team was brought in for union-busting purposes and privatization.”

Of course, Klein claimed the money is being well spent since A&E will cut $200 million from the bureaucracy to be redirected to the classroom. Sure! Go ask teachers if they see any of these savings.

Why Klein’s expensive management team can’t be trusted to find ways to cut the bureaucracy themselves is beyond me, especially since much of the bureaucracy was created by Klein himself: Ten Lis’s per region (well over 100 altogether) at 135-150k each, Ris’s, Pis’s, who knows how many at Tweed, etc. etc. etc. Klein turned what was a simple mess before he took over and turned it into a tangled mess. Pick ten teachers or principals at random and I bet they could find $200 million in savings and would probably do it for free.

Leonie Haimson of Class Size Matters reports:
“I have just finished reading “A Recipe for Failure; A year of Reform and Chaos in the St. Louis Public Schools” by Marilyn Ayres-Salamon, about her tragic experiences as a middle school teacher the year Alvarez & Marsal, a corporate turn-around firm with no education experience, took control of the St. Louis schools. On NY1, Joel Klein said he “had no idea” what the firm had done in St. Louis; a rather astonishing admission considering the money they are paying them. Perhaps someone should send him a copy of this book.”

Basically, A&M balanced the budget at the expense of the students — typical behavior expected of corporate managers who make sure to take good care of themselves financially, while providing the standard corporate perks — lots of travel allowances for managers, expensive communications devices, etc. It is interesting that the corporate manager expect teachers with lots of education to take a hit for working in the public sector but exempt themselves. The complete Audit Report is at www.auditor.mo.gov/press/2004-47.pdf.

Back here at the NYC DOE, also known as Blackberry Ville, we can see all the corporate perks right out in the open as everyone above a classroom teacher can whip out their little machines every 10 seconds to check their email. I hear some teachers want to dress up as Indians and hold a local version of the Boston Tea Party where every Blackberry gets thrown into the Hudson River where they can try to swim their way back to Tweed. Hey! We just saved the DOE some serious bucks.

Attending a press conference with the NYC Education press corps is certainly an interesting experience as Klein lies — I mean spins — and reporters often don’t have the detailed knowledge needed to counter these “spins.” He bills these events as roundtables, which implies some level of dialogue or discussion. But that is not the case as there is little opportunity for extensive follow-up or for providing information to counter what Klein is saying. I’ve covered a couple of these for The Wave and am trying to feel my way and shift from a clearly partisan attitude to a reporter while at the same time framing questions in a manner that will get some useful information out of Klein (who told me at one conference “I see you’ve gone form being a gadfly to a reporter.”) It is a tough shift.

One of the things you notice right away is how many people surround Klein — including an enormous public relations and press control operation. Many of them are very young — some refer to them as “Twinkies.” Since perception is more important than reality, it is a must to spend money on the spinning operation. In the corporate world, the bottom line is profits. In the ed-corporate world the bottom line is based on test scores, graduation rates, attendance, etc. and massaging these numbers to make them look good can be tricky and costs big bucks.

I’ve often been critical of the education press corps. But given the conditions of covering ed news, which many reporters use as a way station to bigger and better things (two of the Times recent ed reporters are now bureau chiefs), some do a pretty good job on certain stories. Dave Andreatta of the Post, considering the anti-teacher positions of that publication, does some very good and fair reporting. Erin Einhorn of the Daily News distinguished herself on the A&E story, as have Andy Wolfe’s columns in The NY Sun. Here is some of Einhorn’s reporting on A&M that is worth sharing:

“The most expensive consultant, Sajan George, is billing the city a staggering $450 per hour as part of a $17 million contract that the city awarded his firm, Alvarez & Marsal, without competitive bidding… George's fees alone will cost taxpayers $1.7 million - more than four times what Schools Chancellor Joel Klein will earn during the same 18-month period. And in an unprecedented move, the contract appears to make some of the consultants responsible for work historically performed by top Education Department officials.”

To Klein accountability is only for people at the bottom.

From Leonie Haimson of Class Size Matters:

A lot has been written about DOE’s controversial $17 million no-bid contract with Alvarez & Marsal – thanks to Andy Wolf, Erin Einhorn and more recently, Sam Freedman. But when one examines some other large no-bid contracts given out by DOE over the course of last year, many of them appear to be questionable.
See for example, the five year no-bid contract granted in March to the group City Year. The proposal was submitted not by any of DOE’s divisional heads, as usual, but by Lindsey Mathews, special asst. to the Chancellor. Mathews asked the contract committee to approve a $16.23 million, six year contract for City Year.

City Year, which is made up of 17-24 year olds taking a break before college or graduate school, in NYC “specifically focuses on work in high-need public schools to help children learn to read, encourage children to stay in school and to care about their communities,” according to the description on the contract webpage.

The internal committee on contracts, made up of DOE employees, instead granted them a five year contract for $11 million— with the sixth year to be contingent on follow-up questions “to be asked of City Year.”

From online research, there appears to be little evidence that City Year has an actual record of accomplishment in this area, and certainly not one serious enough to justify a five year no-bid contract – nor even what it would mean to get children “to care about their communities.” (Is that really the problem with NYC schools: that children don’t care enough about their communities?)

Why should DOE grant a large, long term contract that will last for years following the end of the Bloomberg/Klein administration? Why not give City Year a one year contract and then evaluate their record? But I suppose if Klein’s assistant asks you to approve a contract, and you’re one of his employees, you better agree.

While a quick web search doesn’t explain why this contract might be justified, it does reveal that City Year appears to have a close and ongoing relationship with Dan Doctoroff, the Deputy Mayor for Economic Development, as well as the organization he founded to promote the city’s Olympics bid, NYC2012.

NYC2012 essentially became defunct when the International Olympics Committee rejected the city’s bid for the Olympics. City Year participated in many promotional events with NYC2012 over several years before NYC’s bid was rejected, and just this past April, honored Doctoroff at their annual benefit dinner. Interestingly enough, City Year’s five year contract with DOE is scheduled to end in June 2012.

2- Here’s another example of a questionable contract, indeed the only instance that I have found where the members of the committee on contracts did not reject a proposal made to them:

In April, a two year, $2.2 million contract with UC Santa Cruz was proposed, to continue to give “professional development … for the city-wide New Teacher Induction Program which provides mentoring to all first-year teachers in New York City.”

This contract was rejected, for the following reasons: “Insufficient justification for request” and “Should be competitively bid.” Surely, one would think that there are plenty of teaching training programs in colleges and universities closer to home.

Hurrah! Perhaps the internal review process is not irrevocably tainted, one thinks.

Yet the following month, the contract was resubmitted to the committee for even more money -- $2.8 million --- and then approved.

Now some of these might be justified; City Year and UCSC might be performing valuable services to our schools, worthy of expensive, long-term no-bid contracts. From the record, though, it is impossible to tell. This is the reason public review is required of city agencies before they grant no-bid contracts, to explain and provide reasonable justifications.

Five years at $11 million given to City Year, to help children “care about their communities” with a sixth year vaguely contingent on “questions asked”?

The full list of no bid contracts given out by DOE since last January

Well Past Halfway
BY ANDREW WOLF, NY SUN, July 21, 2006
LINK

We are now well past the halfway point in New York's great experiment with mayoral control of the schools, an experiment that appears to be a work in progress. When first passed, few commented about one curious provision of the law — it is due to sunset exactly seven years after it was first passed. Seven years seemed like an eternity back in 2002. But now we are only three years away from the day that if the legislature and governor do nothing, the old Board of Education and the 32 Community Districts will be reinstated, rising phoenix-like from the dead. Stranger things have happened.
It is now four years since Mayor Bloomberg made the surprising choice of Joel Klein as chancellor, and a full three years since his much-heralded "Children First" restructuring was put into place. What is there now is a creation of the current administration, which makes it all the more surprising that Chancellor Klein is not only engaged in dismantling the structure that he himself put in place to "reform" the system, but is hiring outsiders to do the job for him.
Mentioned casually in the press release first announcing the changes back in January is the participation of the firm of Alvarez & Marsal. The specialty of Alvarez & Marsal is turning around troubled companies, in their words "to develop and implement plans that unlock business value." Their clients include Formica Corporation, Parmalat, Timex Corporation, Winn-Dixie, Liquor Barn, and Levi Strauss. Now they have found another turnaround situation — troubled public school systems across America.
A&M has recently been granted an 18-month $17-million contract by the Department of Education to "support the implementation of budget reductions and reallocation of resources to drive cost savings to schools; assume interim management of financial operations; lead the regional and central offices in developing and providing quality services that schools could choose to purchase; and provide analytical support for long-term organizational improvements that will facilitate the expansion of the Empowerment Schools."
In earlier times, a contract such as this would have been put to a public vote by the Board of Education, a vote taken after a public hearing. All contracts over $100,000 were subject to a hearing and public vote. Had such a hearing taken place, this contract would surely have received scrutiny and debate. Instead it has received mention in just a handful of news stories. Alvarez & Marsal come to the table with a mixed and thin record in dealing with public school systems. The lead item on their resume is their "turnaround" of the St.Louis school system during the 2003-2004 school year. By New York standards, St. Louis is a tiny district with fewer students than several of Gotham's 32 community school districts. St. Louis has terrible schools and even worse management. When A&M arrived, the district was drowning in $73 million in red ink.
Alvarez & Marsal closed schools and slashed payrolls, even reducing the number of teachers. To run the system, they brought in William V. Roberti, whose previous job was running the Brooks Brothers Clothing store chain. Fixing instruction wasn't part of his mandate. It was all money. Unquestionably, Mr. Roberti and A&M brought the district's budget into line. Critics charge that any audit would have resulted in necessary budget cuts. With A&M's $5 million contract and huge salaries paid to top management, the reform came with great pain and much resentment on the part of parents and teachers. After the year spent on restructuring, St. Louis remains a profoundly troubled district.
Alvarez and Marsal were also hired to fix the practices of what may have been the nation's most corrupt school system, that of New Orleans. The A&M team hardly had time to unpack its bags when Hurricane Katrina struck, so A&M's work in New Orleans has been dwarfed by other problems.
New York's problem is improving academic performance by its students. As in many large government entities, the Department of Education could stand better spending practices. But much of the waste emanates from the mayor's and chancellor's own initiatives. Things like the $60 million or so that has been squandered on "parent coordinators." Or extra money spent to bus students from their home-zoned schools.There are the tens of millions spent on questionable professional development schemes. And then there is the $17-million going to Alvarez & Marsal.
Mayor Giuliani cut hundreds of jobs at the old Board of Education the old fashioned way — he reduced funding and forced their hand. Mayor Bloomberg, who tells us he wants to be accountable, can do the same, and he shouldn't have to hire a $17 million private firm to do the job.